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German biotech MorphoSys Inc., the latest firm to benefit from big pharma's burgeoning interest in antibodies, signed its, by far, largest deal to date, partnering with Novartis AG in a 10-year discovery and development alliance that could be worth more than $1 billion.

And that isn't just a pie-in-the-sky figure. MorphoSys CEO Simon Moroney told investors during a conference call that the financial estimate is based on the $600 million Novartis has committed to pay over the course of the agreement - half of that coming from annual technology access fees and the other half composed of research funding - plus "a realistic scenario of the number of products that will be developed."

In other words, the companies are taking into account the standard pipeline attrition of the drug development industry, the fact that only a percentage of investigational candidates actually make it to market.

In calculating its deal with Novartis, MorphoSys used "probability-weighted, success-based payments to derive the dollar value," Moroney said. That makes the collaboration, "by our estimates, one of the largest pharma-biotech R&D alliances in the history of the pharmaceutical industry," he added.

The news sent shares of MorphoSys, listed on the Berlin Stock Exchange (MOR), shooting up 23 percent, or €9.63, to close Monday at €51.01 (US$74.80).

No surprise that it's an antibody deal, since antibody drugs are becoming the go-to products for big pharma firms striving to shore up their development pipelines. MorphoSys' deal is only the latest in a recent flurry of antibody news.

The month of November saw Tokyo-based Astellas Pharma Inc. offer $387 million for antibody firm Agensys Inc., of Santa Monica, Calif., (with an additional $150 million more in potential milestones), as well as Paris-based Sanofi-Aventis SA sign a potential $1 billion cash and stock agreement with Tarrytown, N.Y.-based Regeneron Inc. Big biotech firm Biogen Idec Inc. also generated headlines with its potential $360 million deal with Swiss antibody firm Neurimmune Therapeutics AG to develop antibodies against Alzheimer's disease. (See BioWorld Today, Nov. 21, 2007, Nov. 28, 2007, and Nov. 30, 2007.)

Novartis has worked to amass its own stake in the antibody space - last year picking up two late-stage antibody candidates through its acquisition of Manchester, UK-based NeuTec Pharma plc for $569 million.

The Basel, Switzerland-based company has been working with MorphoSys since mid-2004 when it signed a deal to use MorphoSys' HuCal Gold-derived fully human antibody technology against a Novartis target. Earlier this year, the companies advanced the first candidate to the clinic.

The new collaboration involves a similar structure to the 2004 deal, only bigger and with broader implications for MorphoSys down the road. With the $600 million in committed funding, MorphoSys anticipates a cash flow of more than $30 million per year, Moroney said. The company will work to generate antibodies against Novartis targets, with Novartis funding all the work and taking responsibility for preclinical and clinical activities.

Martinsried, Germany-based MorphoSys will be entitled to milestones and "single-digit" royalties for products successfully developed and commercialized in the alliance and retains a co-development for "a few programs" emerging over the 10-year period, Moroney added.

MorphoSys can opt to co-develop those programs all the way to market, in which case it would be entitled to share in the profit at the same ratio it contributed to development.

It also has "the right to build our own sales force in" in certain territories," Moroney said, adding that those two options were "an important part of the deal."

Terms of the agreement allow Novartis the option of extending the alliance for two years. The big pharma firm also has the right to terminate the partnership after seven years, but only, Moroney said, if specific "precisely defined technology developments are not achieved, which we consider very unlikely."

Of note, the collaboration does not include an equity investment.

Moroney explained that Novartis, which has been the company's largest shareholder since the 2004 agreement, saw "no urgent need to acquire additional equity" in MorphoSys. So "we will continue to have the same degree of independence," he said.

As a result of the Novartis collaboration, however, MorphoSys no longer will pursue the type of fee-for-discovery deals it sought in the past. In that vein, the company will not extend ongoing discovery partnerships with Berlin-based Bayer Schering Pharma and Malvern, Pa.-based Centocor Inc., both of which are set to expire later this month, though any active antibody development programs will continue. All other ongoing collaborations will carry through to the end of their respective agreements; none will be extended.

"The size of the Novartis deal dwarfs what we lose from existing partnerships," said David Lemus, MorphoSys' chief financial officer, adding that the company's intention had been to seek out one large partnership rather than juggling a host of smaller deals.

"Our interests are better served with a single partnership," Moroney added.

Moroney said he was unable to go into specifics of the collaboration, as far as disease targets and number of programs to be investigated, but told investors that the company expects to start a "triple-digit number of partnered programs over the next 10 years." Those include programs emerging from the Novartis deal, as well as from MorphoSys' other partnerships.

MorphoSys' pipeline includes a Phase I-stage cancer compound partnered with neighboring GPC Biotech and an Alzheimer's disease drug partnered with Basel, Switzerland-based F. Hoffmann-La Roche Ltd., also in Phase I.

On its own, the firm has two early products: MOR103, an antibody for treating rheumatoid arthritis, and MOR202, an anti-CD38 antibody aimed at multiple myeloma and certain leukemias.

The company, which had cash totaling €105 million as of Sept. 30, expects to incur a one-time advisory cost of €6 million upon successful execution of the Novartis deal.